Q1 2023 Alcon Inc Earnings Call
Greetings and welcome to the Alcon first quarter 2023 earnings call and just time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Dan Cravens VP Investor Relations. Thank you Sir you may begin.
Welcome to our <unk> first quarter 2023 earnings conference call yesterday, we issued a press release and interim financial report and posted a supplemental slide presentation on our website to enhance today's call. You can find all these documents in the Investor Relations section of our website at Investor Dot outcome data.
Tom.
Joining me on today's call are David Endicott, Our Chief Executive Officer, and Tim Stonesifer, Our Chief Finance Officer, Our press release presentation and discussion will include forward looking statements. We expressly disclaim any obligation to update forward looking statements as a result of new information or future developments, except as required by.
The law.
Actual results may vary materially from those expressed or implied in our forward looking statements. Accordingly, you should not place undue reliance on any forward looking statements.
Important factors that could cause our actual.
Actual results to differ from those in our forward looking statements are included in our <unk> form 20-F, and our earnings press release and interim financial report on file with the Securities Exchange Commission and available on the SEC's website at SEC Gov.
Non <unk> financial measures used by the company may be calculated differently from and therefore may not be comparable to similarly titled measures used in other companies.
Non <unk> financial measures should be considered along with but not as alternatives to the operating performance measures as prescribed per our FRS. Please see a reconciliation between our non <unk> measures with directly comparable measures presented in accordance with IRS and our public filings for a discussion perp.
Our comments on growth are expressed in constant currency in a moment David will begin by recapping the highlights from the first quarter. After his remarks, Tim will discuss our performance and outlook for the remainder of the year then David will wrap up and we will open the call for Q&A with that I will now turn the call over to our CEO David Endicott.
Okay.
Thanks, Dan and welcome to <unk> first quarter 2023 earnings call.
2023 is off to a great start we benefited from solid demand strong commercial execution and pricing improvements across both our franchises, which resulted in double digit sales growth for the company in the quarter.
In addition, we delivered a core operating margin of 26% and our core diluted earnings of <unk> 70 per share.
In surgical we had another strong quarter, despite challenging comparisons in South Korea.
<unk> also recall that last year, there was a change in PCI all reimbursement in Korea, which increased demand during the first quarter. This change was made PCI well out of pocket expense higher for many Korean patients as a result local demand has since reduced.
If we exclude the impact from Korea, which we estimate to be approximately $47 million total implantable sales were up roughly 5% on a reported basis at approximately 9% on a constant currency basis.
More broadly we've continued our <unk> market leadership for another quarter with approximately half of the global market and two thirds of the U S market, despite increasing competitive activity.
In equipment, we continue to upgrade and expand our installed base with the <unk> and Legion devices in the first quarter. Our team delivered a record number of new FICO machine installations since spin.
Importantly, there remains a sizable installed base of legacy Infinity laureate and other machines in international markets. Accordingly, we see continued opportunity for growth in 2023.
Additionally, we continue to grow in diagnostics and we're pleased with our win rate with the Argos Biometer Argos helps deliver clinic to or connectivity and results from real World study highlight that Argos deliver significant time efficiencies for patients during cataract evaluation.
We started rolling out Argos across international markets and customer reception has been positive.
Additionally, customers continue to be pleased with the performance of <unk> with active century, which enhances safety and confidence during surgery and <unk>.
Accordingly, as we upgrade and expand our equipment installed base, we see a natural uplift in consumables, where we've also taken some select price increases.
At the recent <unk> conference I'll cut innovations were featured in approximately 180 abstracts across cataract refractive glaucoma surgery as well as visualization in ocular health.
As a leader in the ophthalmic surgical space, we're committed to improving patient outcomes and surgeon efficiency by accelerating the pace of innovation.
There are three important studies for the coverage I'd thought I'd like to highlight.
First is on Clarion data presented at the conference evaluated a head to head comparison of distance and intermediate vision of Clarion and a competitive mono focal plus I O L.
This study concluded that <unk> provides excellent distance and no statistically significant difference in intermediate vision potentially offering superior value to the competitive lens.
At the conference. We also expanded our connected equipment ecosystem with the introduction of enhanced visualization and data integration.
Diagnostic images from the Argos Biometer with image guidance are now connected to the newly available and Genuity, one five to precisely overlay incisions capsule, orexis <unk> and toric alignment.
Data presented at the conference shows that this integration is increasing efficiency and reducing manual errors sub surgeons work faster, while improving their confidence in delivering better patient outcomes.
Given the post pandemic surgical backlog sees improvements are critically important.
Lastly data presented on our hydrous micro stent reinforced that hydrous offers long term glaucoma medication reduction as well as reduction of interlocutor pressure.
It's important to surgeons consider which stent to recommend to their patients.
Additionally, governments and health care payers consider this type of data as they determine which products and procedures to reimburse.
Now I'll move to vision care, where we had a strong quarter in both contact lenses and ocular health.
In contact lenses, we're seeing the benefit of our expanded product portfolio, which now includes sphere, toric and multifocal options for value mainstream and premium customers in both daily and reusable categories.
We continue to see a meaningful share gains driven by our new toric product launches, including precision one total 30 in dailies total one.
We introduced totaled 30 for astigmatism in the first quarter.
The first reusable lenses water gradient technology created specifically for a stigmatic wares and initial customer response has been exceptional.
Total <unk> Toric is currently available in the U S and parts of Europe , and we anticipate expanding availability to additional markets throughout 2023.
Turning to ocular health, we continue to integrate area into the outcome family.
Our U S. Eyedrops Salesforce has already added Rocco Tanner rhopressa to their promotional program, which contributed nicely to our vision care growth this quarter.
In addition, we saw growth in our over the counter portfolio, mainly driven by favorable pricing and sustained family of products.
Finally in contact lens care, while we continue to navigate supply challenges, we feel increasingly confident about our progress toward resolution in the back half of the year.
Now I'll provide an update on our end markets in surgical global cataract procedures were up mid single digits in the first quarter versus prior year.
Global <unk> penetration in the quarter was down 30 basis points versus prior year. However, excluding the impact from Korea Global penetration was up 90 basis points versus prior year and up 40 basis points sequentially.
And we're following penetration trends closely and continue to expand programs at digitally and conveniently educate patients about their leads options early in the cataract journey.
Based on recent survey data, we estimate that U S. <unk> penetration could go as high as 35% so.
So with current penetration in the high teens, we believe theres plenty of runway for value creation.
Moving to contact lenses retail market growth was up high single digits.
In the quarter, we saw steady where trade up and meaningful contribution from price increases.
Now before I pass it to Tim I want to briefly comment on our market outlook for the remainder of the year.
On our February earnings call, we indicated that we were planning for a modest slowdown in full year market growth.
During the first quarter global Hei will penetration was resilient and contact lens trade ups and price capture were both strong.
Historically, our markets have grown around 5%.
And given current macroeconomic news, we believe it's prudent to assume market growth at or slightly below historical rates in the back half of the year.
However, we continue to expect positive contributions from market share and price and as a result, we expect to grow faster than the market.
With that I'll turn it over to Tim who will take you through our financial results.
More color on our outlook.
David We're pleased to report first quarter sales of $2 3 billion up 11% versus prior year.
This growth was primarily driven by strong demand for our products, including products from acquisitions as well as solid commercial execution.
Additionally, our first quarter sales results reflect positive pricing across our business, particularly in consumables contact lenses in ocular health overall, we estimate that these price increases drove approximately one third of our topline growth.
Our first quarter U S. Dollar sales growth included approximately 400 basis points of pressure from foreign currency.
Starting with our surgical franchise revenue was up 8% year over year to $1 3 billion.
And <unk> sales was $427 million in the quarter down 3% year over year, primarily due to declines in PC IOL sales in South Korea, which David mentioned in his remarks.
Excluding the impact from Korea, and <unk> sales continue to outpace the market and were up approximately 9% on a constant currency basis.
We expect a minor residual impact from Korea are approximately $10 million in the second quarter due to the demand re basing that David mentioned.
And consumables are first quarter sales were up 13% to $656 million. This strong growth primarily reflects favorable market conditions as well as pricing.
And equipment sales of $221 million were up 14% year over year due to continued strong demand for cataract and <unk> devices, particularly in international markets as we upgrade and expand our installed base.
While our first quarter results were strong we expect our equipment year over year growth rate to moderate in the remainder of 2023.
Turning to vision care first quarter sales of $1 billion were up 16%.
This growth includes approximately five points of contribution from the ophthalmic pharmaceutical products, we acquired in 2022.
Contact lens sales were up 14% to $615 million in the quarter.
This growth reflects the continued strength of our innovative portfolio of Si Hy lenses importantly, we saw double digit growth in both the daily and reusable contact lens categories.
As I mentioned earlier first quarter contact lens growth also reflects price increases.
And ocular health first quarter sales of $414 million were up 19% year over year.
This growth was primarily driven by our portfolio of eyedrops, including Rockwell Canon Rhopressa as well as price increases across our over the counter products, including sustained and paradigm.
Now moving down the income statement first.
First quarter core gross margin was 63, 4% up 160 basis points on a constant currency basis. This growth was driven by higher sales and manufacturing efficiencies from higher volumes, partially offset by unfavorable product mix from lower <unk> sales in Korea.
We expect gross margins to be pressured in the remainder of 2023 as we sell inventory that was manufactured with a higher cost base due to inflation and as we lap last year's price increases.
Core operating margin was 26% flat versus last year on a us dollar basis, but up 130 basis points on a constant currency basis.
The constant currency growth was mainly driven by higher gross margin and improved underlying operating leverage from higher sales, partially offset by higher investment in R&D. Following the acquisition of Aerie.
As we commented on in the past, we expect to see seasonally higher marketing and sales spend in the second and third quarters for the peak summer and back to school season.
First quarter interest expense was $47 million compared to $29 million last year, driven by higher debt. Following the funding of the <unk> acquisition and less favorable interest rates.
The first quarter core effective tax rate was 18, 4% compared to 15, 9% last year, primarily due to the mix of pretax income our costs across tax jurisdictions and a decrease in the tax benefit associated with discrete items.
Core diluted earnings per share were <unk> 70 in the quarter up 14% from last year on a constant currency basis.
Before I touch on our outlook for the remainder of the year I'll discuss a few cash flow and other related items.
Free cash flow for the quarter was an outflow of $19 million compared to an outflow of $52 million last year.
The improvement is mainly driven by better cash flows from operations and lower capital expenditures.
Similar to past years, we expect free cash flow to be stronger in the remainder of the year as the first quarter includes the annual associate incentive payments.
Additionally, we paid the legal settlement, we mentioned on our last earnings call in April .
On a full year basis, we continue to expect to generate more free cash flow this year as compared to 2022.
Transformation costs of $26 million in the quarter and $314 million life to date.
We continue to expect to wrap up the entire transformation program by the end of the year.
Before moving to our outlook I am pleased to report that at our annual General meeting last week shareholders approved the dividend of 21, <unk> <unk> per share in line with our payout policy of approximately 10% of the previous year's core net income I want to thank our shareholders for their continued support of outcome.
Now moving to the 2023 guidance.
Our current outlook assumes at markets grow at or slightly below historical averages in the back half of the year.
Exchange rates as of mid April hold through year end.
And inflation and supply chain challenges continue through 2023.
Based on the strong momentum in the business, we are increasing our year over year constant currency sales growth guidance to 7% to 9%. This.
This growth is partially offset by incremental FX headwinds based on currency movements against the dollar, which we expect to pressure sales by approximately 70 basis points versus prior year.
As a result, we are maintaining our U S. Dollar net sales guidance for 2023 at nine 2% to $9 4 billion.
Moving to core operating margin, we are maintaining the range of our full year outlook of 19, 5% to 25%.
Okay.
We now expect interest and other financial expense to be between $245 million and $255 million.
Relative to the first quarter, we expect an increase in other financial expense, primarily due to higher hedging costs and lower financial income.
We are maintaining our core effective tax rate guidance of 17% to 19%.
Finally, we are raising our core diluted EPS constant currency growth outlook to 20% to 24% due to the strong performance in the first quarter.
This growth is offset by approximately <unk> 12 cents of FX headwind versus prior year.
As a result, we are maintaining our core diluted EPS guidance of $2 55 to $2 65 per share.
First on our strong first quarter results on current assumptions, we are now trending towards the high end of our guided EPS range.
To summarize I'm very pleased with the momentum we've built at the start of the year and it's clear that our business is performing well.
As we look forward, we will continue to focus our efforts on driving innovation and delivering above market sales growth.
Lastly, I'd like to take this opportunity to thank all of our team members for another quarter of outstanding results with that I'll turn it back to David.
Thanks, Tim to wrap up we're very pleased with our start to the year, we continue to build momentum with our new product launches and our team continues to execute well.
As a result, we are winning with customers and driving above market growth.
We also continue to deliver operating leverage in line with our financial thesis.
Looking forward, our focus remains on accelerating innovation, driving topline growth and creating shareholder value.
With that operator, let's open the call up for Q&A.
Thank you we will now be conducting a question and answer session.
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Okay.
Our first question comes from Anthony Petrone with Mizuho Group. Please go ahead.
Thanks, and congrats to a shrunk start to the year here.
I'll have two questions here.
The first will be just Dave maybe just a little bit on the premium IOL comments.
A competitor reported earlier a.
A couple of weeks ago.
Some pressure that they commented in the premium IOL space here, when we exclude South Korea plus nine.
Is ahead of our expectation so maybe specifically can you comment on the shared dynamics within premium <unk> and then maybe a little bit of a compare and contrast as to what alcon saw in the marketplace versus competitor and I'll have one quick follow up.
Yes, Anthony Thanks.
Premium market, we follow penetration pretty closely and as I think I've said in the notes there.
We were up 90 basis points, if you exclude Korea, So 11, five to 12 three globally and.
And sequentially, we saw good move sequentially again 40 basis points of penetration up.
When you exclude Korea again now that said.
There's lots going on in the market. There is a number of share players moving around.
We've obviously finished very strong with the majority of the <unk> business and kind of a two thirds. If you will of the PCI oil business, but.
Notwithstanding that we felt like we had a pretty good quarter, I think Korea things a bit confounding.
You need to back it out so I think that will clean itself up in the third quarter. So you get some pretty clean looks going forward third and fourth quarter.
That's helpful. And then maybe one for Tim just on margins and I'll get back in queue. The 26% ahead of expectations just to clarify there was was there any selling day impact there and then when we look at the bridge heading into the year and 26% in the quarter versus the range, maybe just a little bit on the cadence.
For the next three quarters on how margins should play out again congratulations.
Yes, Thanks, a lot, yes, I don't think Theres a billing day.
Comp issue there as far as the phasing goes.
I would think about the year. This way is starting with revenue Q1 revenue is a little bit noisy I call. It because <unk> got the Korea comp issue you've got the omicron in North America, we had a little bit of a effect. There. So what I would probably do there is I take whatever you think between that $9 2 million to $9 4 billion.
<unk>.
Take out the Q1 revenue and then I would trend it very similar to how we trended last year and Thats, how I would layer in your revenue.
Our revenue number.
If I work my way down gross margin.
We're pleased with the gross margin this quarter, there's no doubt about it we saw some nice expansion. There we do have the benefits of some lower cost inventory in there. We also have the benefit of some price lapping in there.
So if you recall last quarter. When we gave the guide we said that there would be a little bit of improvement in gross margin for the total year.
So I would kind of bring that down to.
Whatever you feel comfortable as far as that improvement is.
On the R&D I would say we finished Q1, we were at eight 5% as we said last quarter. We think we'll be at the higher end of that 7% to 9% range. So I would take that into consideration and then as we said in the script on the TFC Q2, and Q3 are typically higher for us as we invest.
Behind back to school initiatives and things like that so I would probably layer that in and then lastly on the interest expense, we did bring down the overall interest expense Q1 was a little bit favorable.
So I would pick whatever you think the ranges between that $2 45, and 55% and $2 55 again I'd back out Q1, and then I would just level load that and that's how I'd sort of phase of the year.
Thank you much.
Yes.
Our next question comes from Matthew <unk> with Keybanc capital markets. Please go ahead.
Good morning, and thank you for taking the question.
On the contact lens side.
Have you.
It's really hard to understand the difference between the kind of fourth quarter.
<unk> performance.
The first quarter performance.
And kind of how.
How consumers.
Kind of asking do you have any data.
What drove purchasing activity three.
Three months ago, what drove it this quarter is it is it a regional inflection may be outside the U S.
Well Matthew let me give you what we do know and I think what I can tell you is we're very pleased with our fourth quarter performance I know that there was some concern around the unit volumes in the U S. I don't think that was really well deserved I think you've got to remember that most of the value of the contact lens market is the trade up to dailies and I think we saw a pretty salt.
<unk> market in the fourth quarter, we saw.
For our own performance, we were happy with it.
We obviously were hitting on all cylinders in the first quarter.
Continued to see steady trade up from consumers continue to see and particular volume growth for us. So read that as we think we grew faster in volume share than our competitors and I think we picked up a little price in there as well as we try and offset some of our input costs. So when you most of the market was putting some price in play in the first quarter. So again.
Youre going to see everybody's number kind of exceed what youll see in the audited data and again I'd be careful with the audited data because its retail not factory and the read through on that takes a little bit of time. So.
There's going to be some gaps in there always is so I think we had a good fourth quarter. We had a very good first quarter and I think what I'm really encouraged about is the uptake in total 30 total <unk> toric.
U S contact lens business in particular had a very very good quarter.
And then excellent and then just a more technical question.
When you are talking about inventory and getting through cost too.
Low cost inventory moving to high cost inventory on the vision care side versus the surgical side, just how many months of inventory do you typically hold so we can kind of get a sense of when that when that lag when that that drag I'm sorry.
Go away.
Yes, I would say in general from a from a total company perspective, it probably takes five or six months for the inventory to go off the balance sheet into the P&L.
Alright, Thanks, Tim.
Okay.
Our next question comes from Jeff Johnson Please.
Please go ahead.
Thank you good morning, guys, maybe two questions.
On contact lenses and on pricing so Tim you've said now a couple of times lapping some price increases from last year, but I think on this call you've been as Albert as I've heard you in a long time on price probably added almost three points to the companywide that you were getting pricing across contact lenses ocular health and.
On the consumable side and surgical so it sounds like some new price increases have gone in.
Just in this quarter, we clearly heard that in contact lenses, especially but I'm just trying to reconcile that with you talked about lapping. These price increases so help us understand kind of the gating of price increases over the next 12 months versus what maybe you saw over the past 12 months.
Yes, let me take that Jeff.
The price increase lapping that we're talking about we had a price increase this time last year. It was December January so for about six weeks of the quarter January and part of February .
We had two price increases in play.
And so that was that's really what we're talking about we say lapping. So we had kind of a double up there.
That won't recur I think going forward unless we take an additional price increase which we don't currently.
Have a comment on I think Directionally, where we believe this is going as we're trying to be a sensitive as we can to the consumer and at the same time offset some of our raw material inputs and our input cost as we all know has gone up quite substantially so.
Think we feel good about the ability of our our ability to take price. During this period and the market took price we were very much right on top of the market. So I don't think we were out of line either one direction or the other.
And we were pleased with how accepting the customer groups were that we've typically talked a little bit about price leakage.
And we got a little bit better performance from what we would've expected.
Historically, so I think people are kind of willing to take and understand why.
We've taken some price increases so that's helped us a little bit in the quarter.
Understood and then so does that 3% price or so I think that's what you were trying to signal the signal in the prepared remarks does that 3% price slipped back to plus two over the rest of the year as some of these price increases continue and when you were talking about volume growth in contact lenses above market.
Is that all coming on I share that.
That is increasing or are you finally, starting to see maybe a more rapid kind of trade up within your own user base. That's helping those volumes. So just just help us understand kind of the trade up dynamic versus on a share during the quarter. Thanks.
Yes, we had a very good on the second one it was principally share we obviously get some trade up from our own business, we probably have a little bit of cannibalization, but we were very pleased with the amount of.
Share gain that we had in the quarter. So I think directionally I would read that is.
Volume is principally share gain.
The second pieces it was on the price for the rest of year I would expected the price settles down a little bit for the first quarter, because we did have a little bit of a lapping of that we see some price for the rest of the year, but it kind of moderates towards the end of the year.
Thank you.
Our next question comes from Ryan Zimmerman BPI. Please go ahead.
Hey, guys. Congrats on the corner just two for me.
Just.
Dave You had previously I think on the fourth quarter call assume that cataracts will be weaker in the first quarter yet the market does appear to be stable net of Korea is there anything to suggest that demand pulled forward here and just how to think about cataract demand.
Or market volumes.
Remainder of the year given given this dynamic relative to your assumptions.
Well.
Brian I think what we believe.
I hope I communicated at the first quarter was cataract volumes are generally pretty stable, even even in a recession kind of environment, we still see the cataract volumes. What we've what we've said is that implantables the trade up from a mono focal to an agi well, we've never seen that in our.
In in kind of a heavy recession environment. So we were unclear as to what was going to happen and again, we made some assumptions none of that really occurred in the first quarter. So volumes was very stable and trade ups looks pretty much consistent with what we've seen in the past. So directionally I would expect cataract volumes to stay pretty stable and the only thing I would.
Good.
Think about is if there is a.
A real pullback in the consumer doesn't have an effect on <unk> is we really don't know that and we really haven't forecasted much of one.
So I think we feel pretty good about the positive forward momentum that we have in penetration and I think as we kind of get beyond Korea.
Next quarter, maybe two quarters away, you'll really get a cleaner view the back half of whats happening with.
With both of those things, but I think reasonable sub.
Assumption I think at this point is the cataract market will remain in that kind of.
Four to five range kind of that that's typically what we've seen historically and we've always said would be a little hotter after COVID-19, because we get a little bit more folks back into the market. So it feels pretty pretty much like that now.
Okay, and then real quick for me, the 7% to 9% underlying growth assumption.
He did.
470 basis points, roughly 500 basis points.
If I take that forward im kind of coming out to about 180 basis points to 200 basis points for the year.
Jim does that Jive with kind of your thinking or do you expect some bigger contributions from aerie in the back half of the year. Thanks guys.
I think it'll be pretty consistent with how we guided on the last call. It's about two points of growth.
Yes, okay.
Understood. Thank you guys for taking the questions.
Our next question comes from Veronika <unk> CD. Please go ahead.
Hey, guys. Good afternoon, and thank you for taking my questions, Let me start with Jim.
You can take a picture for the full year.
Obviously lots of moving parts in the business, David but if I extrapolate in quarter three that you've delivered.
I'm already are.
<unk>.
You're guiding for a deceleration in spite of that.
Other than the market commentary that you made about the back half of the year or anything else. That's worrying you.
Think about the remainder of the year or is this just being a bit conservative and then I have a follow up after that.
Yes, Brian look I mean, the comps are little easier as you know in the first quarter. So you should expect that to be a little bit higher. So don't forget that there was really China last year. It was in a tough spot Japan was in a tough spot our Asia business broadly and.
And then we still had some coronavirus stuff going on and even some of the western markets. So first quarter is going to be a little bit better than I think the rest of the quarters that said I don't think we are trying to forecast anything other than a belief that there is enough news out there to be careful and be prudent about how we think about the back half of the year and that's that's really all we're trying to we could be wrong on that assumption.
And if we are we'll be to the higher end of our guidance, but on the other hand, we think it's the right way to budget and we'll kind of move our way through the year and update this each quarter. So that's kind of how we've thought about the year I'm not sure if that helps.
Direct to your question, but that's what we've been doing.
Yeah No no no. That's really helpful. And then my second question was just on the consumables and pricing and I think very impressive double digit growth rate against a market that's growing mid single digits.
How broad based the pricing increase has been that you've been able to put through.
We expect Q pointed out flat through the remainder of the year. That's it for me thanks guys.
Yes vertical we we are very pleased with the consumables business.
I think it's fair to assume that our equipment revenue for the last several years that has been fairly robust as driving now a pull through of consumables and I think we have gained footprint all over the world and I think that's obviously, helping us drive the consumables business the price element of that is relatively modest.
As a price element to it and we've historically not been able to do much there, but about a third of our consumables are bought stand alone without a contract and in those cases, we've been able to raise some price and as we come back around on contracts that maybe are three years old.
Or maybe they didn't have price escalation clauses in them. We have begun we probably started this last year when inflation got hot.
And as those contracts have matured and as we've been able to put and renegotiate them, we've been putting some pricing so consumables it picked up a little bit.
We always see a little bit of downward pressure as well as.
As governments are always squeezing the other way, but in this case.
<unk> been able to kind of Eke out I think a reasonable price assumption that should stick kind of for the rest of the year.
And we will go forward with as much of that as we can but the main thing here I think really as consumable demand is quite good and I think it is built on what has been a terrific international performance by equipment and a real steady growth.
At our best year ever last year and continues to do pretty well so.
We're really doing well and equipment and that obviously drives our consumables.
Yes.
Our next question comes from Larry <unk>.
With Wells Fargo. Please go ahead.
Good morning, Thanks for taking the question and congrats on a really nice quarter here.
Hey, Tim.
Could I just clarify the price at one third of your growth is that the 11% constant currency or one third of the 7% reported.
That would be the reported number.
So one third of the reported okay.
And then we saw you got precision seven approved.
David just curious with the launch plan is there at.
At the Analyst meeting you said you still have some work to do but it looks like.
Approval may have come earlier, so how are you thinking about the launch of precision Seth and I had one follow up.
Yeah, we're not we're not yet ready to launch precision we've got an inventory build to go onto we also want to give candidly we wanted to give our sales force the time to promote what appear to be quite sensitive products to promotions. So we're going to time. This one.
And position it.
Very carefully and I think we'll have more news on that later in the year I don't think.
We're going through right now is is get that product out immediately as we build inventory for it that will take us some time, but also I would just say that.
The first quarter was encouraging around total 30 totalled 30, toric and frankly, our toric and general and.
And we'd like to make sure that we get the full energy behind those products as they are relatively large markets fairly profitable for us.
And our existing markets that we know a lot about so I think as we.
Fine tune our plans are a piece of it will be back to you with some plans around that but directionally right now we're super happy with.
The momentum we have on existing products in the market.
That's helpful. David you guys gave a lot of helpful numbers on this call sometimes it gets a little confusing so I want to make sure I've heard this correctly the <unk> share in the U S.
That's where you said it was about two thirds or 66% in your prepared remarks, that's down from over 80, a couple of quarters ago.
If I'm comparing apples to apples, so what's going on there and do you feel like the share has stabilized.
No you've kind of misread that was just a little bit.
The 80, plus has a PCI or share which is a subset of HOS. So remember <unk> is the combination of toric lenses.
And Pete and PCI was presbyopia correcting lenses.
And so that's what that's what's going on there in that numbers down slightly but really it's a function of the we were over indexed in Korea and under indexed in China, and frankly, those Korea was way down in China was up so.
I wouldn't make much of any particular share movement at this point.
Alright got it thank you.
Our next question comes from David adding with Jpmorgan. Please go ahead.
Hey, guys. Thanks for taking the question maybe just on the SG&A expectations for Q2 Q3, I mean, you always have a step up in this quarter. So should we expect something more than we've seen in previous years.
And then just a follow up just in terms of foreign exchange.
I'm still struggling to see how you can have a bigger headwinds now given the dollar weakened against most currencies what are your results.
Yes, the SG&A less will be very similar to what we've seen in prior years. So again I would kind of use the same trends.
And go off of that.
As far as the FX it.
It really depends a lot of people look at the the Dx Dx why the Bloomberg thing in the baskets there are different than our baskets. So so we definitely see some strengthening of the U S dollar, particularly against the Aussie dollar and the Japanese yen and the Russian ruble. So we are certainly.
When you look at our basket of currencies, we are seeing some FX pressure.
Thank you.
Ladies and gentlemen.
Or if you would like to ask a question. Please press star one.
Our next question comes from Brandon <unk> with UBS. Please go ahead.
Good afternoon.
Hey, guys. Thanks for taking my questions just two for me.
Firstly, just on contact lenses and it does look like you're taking.
Meaningfully more share and maybe you have done in the last few quarters.
It seems to coincide with I suppose a broader international launch of a broader range of products. So.
Is this something we should get used to is the question on boss.
And then with regard to guidance I mean, you've talked again, a beta sort of.
Cessionary pressure just to the idea that you want to be slightly cautious in the second half just to.
Just to make sure that you've got guidance in the right place.
The flipside of that is if there is no pressure no research.
Is it fair to say there is upside to the current guidance then thank you.
Yes, Graham obviously on the second one that's exactly you are reading it correctly I mean, if we're wrong and again, we could be we have no particular corner of the market of truth on when a recession happens if it happens at all.
I think we will be certainly to the high end of our revenue side. So I think we've been smart I think too I think prudent to do this.
Just slide it out as we see it so we will keep moving it out as we can but we'll update you each quarter as we go through the year and hopefully.
The world is much more stable than is often reported.
What I would say is on the other one on contact lens share.
We did have a very good quarter on share I do think it's a function of getting more products out there and also just some of those products maturing into their curves. So again it takes a little while after you launch to get people samples get them.
<unk> get those onto I get people confident with the products.
It also happens to help a lot to see the toric products get out there and I think.
As you get toric and sphere together, the torque tends to give a little bit of a halo to the sphere. So you get a little bit of.
Benefit from having a broader line in there.
Or the optometrist to just simply use a brand.
And fit most of their patients so that I think is having a positive effect. So.
The first quarter was terrific that way, we obviously plan to do everything we can to continue that and we'll have to see as we go forward how that takes shape.
Maybe just a quick follow up on the impacts of that for margin is.
Is it functionally just easier now to see some of this operating leverage drop through.
When <unk> got.
Foster growth in contact lenses. So are you at the point, where utilization is really working for you on contact lenses are gross margin neutral to accretive to the group.
Well I mean, Tim.
Even in this as well, but I think directionally, what I would say is.
As volumes increase we tend to add additional lines in those lines mature kind of at a staggered basis right. So as soon as we put one on like some of the ones. We put on years ago are kind of now running full speed they make a lens at the terminal value and Thats, a good price, but along the way we've added more so you get a blended rate of of cost of goods, which does.
Isn't quite really mature until you have kind of stabilized all that gotten themselves out there as it grows kind of gently towards the outer years. We've obviously got some nice positive growth in a hurry here.
And we're super confident about our ability now to generate long term operating efficiency on the lines because I think we've already seen it on some of the ones that we put in several years ago. So we know our terminal values or rate I do think youll, just see steady growth in the.
Kind of TPC margin and Thats, probably the best way to think about it Tim Yeah. That's right. If you go back to the capital markets day that margin expansion chart that we showed by franchise. What we saw historically was gross margin pressure, but you were getting leverage on the SG&A. Then you sort of had less pressure on the gross margins.
And what we're seeing now and we would expect to continue to see you.
You get continued gross margin expansion as these lines become more true more mature and ended up running at their optimal capacity.
Awesome Super clear thanks, guys.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one.
Hey, while we're waiting Larry I'd, just like to clarify I misspoke that price growth is on a constant currency basis apologies for that.
Operator, we can take Steve Lichtman from Oppenheimer.
Yes.
Our next question is from <unk> chief relation with Oppenheimer. Please go ahead.
Thank you and good morning, guys.
Just two questions as follow ups one.
You mentioned the <unk>.
Comps okay.
In the in the first quarter, obviously, its been tricky to to evaluate comps over the last few years.
Do you think.
Played a part in the first quarter and there was there one or two segments yet.
Perhaps a different impact than in the rest of the business and then secondly, it seems like.
China.
Seeing a pick up I was wondering if you could talk about.
That country is doing for you across your key segments.
Yes, Steve that's exactly where we saw that which was Asia. In particular was affected last year was slow to sort of come through the year and it has picked up in the first quarter. So that did help I think everybody in the industry all over.
And certainly China helps us, it's five or 6% of our.
Our revenue so I think we feel like that was a nice positive and certainly a little bit better than we expected of Japan also had a pretty good.
Quarter, and I would just say that it was a little bit better than expected for us.
So I think the markets in both cases, we've kind of seen a little bit better response than perhaps we had forecasted.
That said I think you still had some other we had forecasted most of the other.
Impacts correctly, and I think directionally, we see those as more modest in terms of change year on year.
What was the second one just on the comps, yes, sorry, just on the comps.
The dynamic in the first quarter and if there was any segments that were different than others in terms of the impact there.
Not really I mean, I don't think there was any business to business that really wasn't some geographies. It was really a geography thing.
So I would say that's the main thing.
Got it thank you.
There are no further questions at this time I would like.
Just turn the floor back over to Dan Cravens for closing comments.
Great well, thanks, everybody for joining us. This morning, if you have any follow up questions.
Please don't hesitate to reach out to either <unk> or myself and have a great rest of your day I. Appreciate the time thanks, everyone.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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